01—Abstract
Summary
Summary of the 8-K filed July 26, 2024. Cited figures are marked; the original filing is the authoritative source.
Centene Corporation (NYSE: CNC) reported second quarter 2024 results on July 26, 2024, with GAAP diluted EPS of $2.16a and adjusted diluted EPS of $2.42, up 15% from $2.10 a year earlier.
Total revenues were $39.8 billionb and premium and service revenues rose 3% to $36.0 billion, driven by Marketplace membership growth (up 34% year over year) and favorable Marketplace risk adjustment, partly offset by lower Medicaid membership from redeterminations. Profitability pressure came from a higher health benefits ratio (87.6% vs. 87.0%), reflecting Medicaid acuity shifts and Medicare Star rating impacts, though the SG&A ratio improved to 8.0% from 8.6% on an adjusted basis. Management reaffirmed its 2024 adjusted diluted EPS guidance floor of greater than $6.80 and GAAP diluted EPS floor of greater than $5.94.
It raised 2024 premium and service revenue guidance by $5.0 billion to $141.0c-143.0 billion, lifting total revenue guidance to $155.0-157.0 billion, and expects the full-year HBR at the high end of its prior range, approximately 87.9%. The CEO acknowledged remaining work in Medicaid as redeterminations wind down. Balance sheet and cash flow were solid: operating cash flow was $2.2 billion in the quarter, with $38.5 billion in cash, investments and restricted deposits and $17.6 billion of total debt.
The company repurchased 10.7 million shares for $800 milliond in the quarter, leaving $4.4 billion available under its buyback program. Days in claims payable rose to 54, a sign of higher claims-payment timing that investors should monitor.
02—Key points
Key Highlights
- Adjusted diluted EPS of $2.42 rose 15% year over year, while GAAP diluted EPS was $2.16.
- Premium and service revenues grew 3% to $36.0 billion, led by Marketplace membership up 34% to 4.4 million, partly offset by Medicaid membership declines of 8% in revenue.
- Health benefits ratio rose to 87.6% from 87.0%, driven by Medicaid acuity and Medicare Star rating impacts.
- Adjusted SG&A expense ratio improved to 8.0% from 8.6%, aided by Marketplace risk adjustment and the Circle Health divestiture.
- 2024 guidance reaffirmed (adjusted diluted EPS > $6.80) and total revenue guidance raised to $155.0-157.0 billion.
- Repurchased $800 million of stock in Q2 with $4.4 billion remaining under the authorization; cash flow from operations was $2.2 billion.
- Pending sale of Collaborative Health Systems to Astrana Health, expected to close by end of 2024.
03—Questions
Frequently Asked Questions
Why did Centene raise revenue guidance but keep EPS guidance unchanged?
The revenue increase of $5.0 billion reflects additional Commercial ($2.0 billion), Medicare ($2.0 billion) and Medicaid ($1.0 billion) premium revenue. Because this growth comes with lower-margin business and a higher expected HBR of about 87.9%, management kept its adjusted EPS floor of greater than $6.80 unchanged.
What is driving the higher health benefits ratio?
The HBR increased to 87.6% from 87.0% mainly because Medicaid acuity rose as the redetermination process progressed and rates lagged behind member needs, and because of Medicare Star rating impacts. Marketplace growth and favorable 2023 risk adjustment partly offset these pressures.
How is Medicaid membership trending?
Total Medicaid membership fell to 13.1 million from 16.1 million a year earlier, a decline of about 18%, as redeterminations removed members. Medicaid premium revenue fell 8% in the quarter. Management said there is still work to do in Medicaid as redeterminations wind down.
Are there any signs of working-capital or cash timing pressure?
Days in claims payable increased to 54 from 52 a year earlier and from 53 in Q1, and first-half operating cash flow was $1.7 billion versus $6.8 billion in the prior year. Investors should watch these measures alongside the strong Q2 operating cash flow of $2.2 billion.
04—Continue